MYRON CORPORATION V. ATLANTIC MUTUAL INSURANCE CO.
(SUPPREME COURT OF NEW JERSEY, JULY 27, 2010)
New Jersey Rule 4:42-9(a)(6) allows fee shifting in “an action upon a liability or indemnity policy of insurance in favor of a successful claimant.” The insured, a New Jersey company, was sued for blast faxes sent allegedly in violation of the Telephone Consumer Protection Act of 1991 and Illinois consumer protection laws. It sought defense and indemnity from its insurer, who defended under a reservation of rights.
When American States Ins. Co. v. Capital Associates, 393 F.2d 939 (7th Cir. (Ill.) 2004) was issued, the insurer disclaimed coverage and commenced a declaratory judgment action in Illinois seeking a declaration of no coverage. The insured filed its own coverage action in New Jersey. The insured convinced the Illinois court that New Jersey had a stronger connection to the case, and the court accordingly abstained. By that point, the insured has spent $160,000 on the Illinois action.
The insured then litigated the New Jersey action to a successful conclusion. It sought the defense costs for the Illinois action based upon the R. 4:42-9(a)(6), but the insurer refused. The trial court agreed with the insurer, holding that because Illinois had not equivalent rule, the insured would not be entitled to fees there even if it had prevailed.
In reversing, the appellate division stated that the fee rule should apply because “unless the insured can recover its counsel fees for out-of-state litigation in this situation, an insurer could wear down the insured financially through forum shopping.” See Myron Corp. v. Atlantic Mutual Ins. Co., 407 N.J. Super 302 (2009). Since the Illinois litigation was a “battle[] in a war that [the insured] ultimately won,” it was part of the “entire controversy” that was favorably resolved in the insured’s favor in New Jersey.
New Jersey’s highest court adopted the appellate division’s decision in total. In a strong dissent, however, Justice Roberto Rivera-Soto stated that the ruling “does needless violence to the concept of comity among states,” and raised concerns that plaintiffs would flock to New Jersey to take advantage of the rule once they received successful results in other jurisdictions. Further, the insured did not “prevail” in the Illinois action. Myron Corp. v. Atlantic Mutual Ins. Co., 2010 N.J. LEXIS 700 (July 27, 2010).
For a copy of the decisions click here and here
Sarah Delaney and Joanna Roberto